Beef demand expected strong through 2012

Anticipated high demand for U.S. beef in both domestic and export markets bodes well for the industry into 2012, says Justin Gleghorn, Brock Thompson Trading, Amarillo.

“The market has largely been supported by exports,” he said at the second annual Beef Financial Management Conference in Amarillo. Export demand increased by 43 percent from 2009 to 2010, and went up another 23 percent in 2011.

Part of the increase comes from a devalued dollar, Gleghorn says. Also, foreign buyers are taking end cuts, products that are not favored as much in the domestic market.

Future projections indicate more domestic demand for beef in 2011 and into 2012, he says. “The combination of domestic demand and export strength paint a good picture for the cattle market.”

U.S. cattlemen are producing more choice cattle than they were a year ago, Gleghorn says, and “choice and select are both appreciating at a fast pace.

“Also, we are now marketing cattle that are 5 pounds to 7 pounds heavier. Better technology and better management are keys to pulling more performance out of cattle.”

The prolonged drought is having an effect on herd numbers as ranchers move animals onto feed yards because of forage shortage and feed expense. In 2012, he anticipates every month will see “substantially fewer cattle” than the same month in 2011.

The Southwest is not the only region that’s liquidating herds, he notes; the trend for heifer slaughter is down, but spiked in the first and second quarters of 2011.

Gleghorn also discussed volatility in live cattle futures contracts. Outside influences, he says, have an impact — “We see a lot of money coming in that has nothing to do with cattle.”

That situation has become more pronounced since credit position limits were increased after 1993; those limits have increased significantly in recent years. “That creates some volatility, “Gleghorn says. ‘It’s also a factor in the corn market.’

U.S. cattlemen should develop risk management marketing strategies in a volatile market, he says, noting that options can provide a little more flexibility than a straight hedge.